Hyperion claims it was duped by fraudulent data into $570M Andromeda buyout

Back last April when Brisbane, CA-based Hyperion ($HPTX) agreed to pay $20 million in cash and stock for Israel's Andromeda Biotech, while promising $550 million more in milestones, company execs made much of the late-stage data already in hand for a new Type 1 diabetes drug. Today, though, Hyperion's team threw up their hands and surrendered, claiming that they had been duped by a group of Andromeda staffers and an outside biostatistics firm in Israel which had cooked the books on the data to come up with a favorable result.

The claimed fraud has wiped out any value in DiaPep277, according to Hyperion, which is taking an impairment charge of up to $55 million as a result. The plan now is to wrap the remaining Phase III, shelve the program and pursue a legal challenge against the Andromeda group.

Shares of Hyperion quickly slid 15% this morning in premarket trading.

According to Hyperion, Andromeda staffers and the unnamed biostatistics outfit improperly shared unblinded data from the ongoing DIA-AID 2 study to spin the results in a positive fashion. No Hyperion staffers were involved, according to the U.S. biotech.

"This new information leaves us with no viable regulatory path forward," said Donald J. Santel, president and chief executive officer of Hyperion, in a statement. "We're shocked and disheartened at the serious misconduct and deceit by the implicated Andromeda employees, both before and after the close of our transaction. Patients and clinical investigators invested years of their lives in the expectation of an honest result. We will be engaging with clinical investigators and are prepared to complete the DIA-AID 2 trial because the data may still yield useful insights into the natural history of Type 1 diabetes. However, we will not invest further in DiaPep277 beyond completing the DIA-AID 2 trial and meeting our obligations to close out the investigational program as a whole."

Hyperion won its first FDA drug approval back in early 2013. Regulators OK'd Ravicti for genetic conditions known as urea cyclic disorders.

- here's the release